|All to avi, then output setting, near the bottom is additional subtitle expand that,|
On left is additional subtitle (srt,, ass ssa idx) on the right you can browse to your sub (srt)
Why don't you just play the avi file directly from the ps3?
Use it as a media player. I don't know how exactly, but if you google. There is plently of help
A thank you would be nice, if I have helped.